Will Ex-Wall Streeters Fuel an Entrepreneurial Boom? Well…

Much has been written about the unleashing of entrepreneurial potential in the wake of lost jobs, frustrations with being a “depressed survivor” and general dissatisfaction with life on Wall Street 2.0. For those of us who spent time at the big firms during Wall Street 1.0 and have a sense of 2.0 life, it makes sense that many of the smartest, most capable people would either head for established boutiques or leave to create their own ventures. But it is important to distinguish between different kinds of ventures, in particular those that reallocate the value pie versus those that expand the value pie.

At one end of the continuum, populated by guys like Ken Moelis, Frank Quattrone and their banker buddies, you’ve got the value reallocaters. What these people are doing isn’t rocket science; in fact, it’s not materially different than what they had been doing previously. Sure, they might be providing higher-touch service, deeper advice and more senior partner attention, but all they’re doing is taking share away from Goldman Sachs, Morgan Stanley and JP Morgan. Is this entrepreneurship? Sure. Is this the kind of entrepreneurship, however, that’s going to fuel an economic resurgence? Not a chance.

Then you’ve got all those IT professionals, middle- and back-office pros, and less senior bankers trying to figure out what to do with their lives. These are the potential value expanders. Some would like to apply their skills to the ideas of others, get out of the big corporation and go and work for a start-up. Others want to be their own boss and pursue their own dreams as entrepreneurs. Bravo! Assuming the idea makes sense, taking big company skills and applying them to new and exciting problems is fantastic. However, here are a few issues to consider:

The physical environment and resources of a start-up are light years away from that of Wall Street – at any level. I went from a corner office with an assistant, an IT staff, oodles of resources and most anything within my grasp to a sixth floor walk-up (the building had an elevator, but I wouldn’t be caught dead in it – or maybe I would), a bathroom with a washer/dryer that blew lint in your face and a sink that was falling off the wall such that a permanent cesspool existed at the bottom. Oh, and up to eight of us were crammed in an office that was smaller than my corner beauty on Park Avenue. Shocking, yes. But I was ready for it. No assistant. No IT support. Nobody to order my lunch. I went straight back to college, after nearly two decades of being a coddled Wall Street denizen. For whatever reason I was psychologically ready for the shift, but I’ve seen others for whom the transition was somewhat more challenging.

The culture of a start-up is night and day from that of Wall Street. Fiefs and political barriers exist all over the place on Wall Street, and “playing the system” requires a defined skill set: toughness, cynicism and mistrust. Fact is, these attributes that helped you succeed on Wall Street are more than simply unhelpful in a start-up environment; they are toxic. Start-ups are truly collaborative, roll-up-the-sleeves, we’re-all-in-this-together kinds of places. If you are withholding information, managing politics or constantly positioning, you’ll both damage the company and your chances for success. I can personally say that it took me a while, particularly in negotiations with financing sources, to lay down my arms and to stop being the aggressive and tough Wall Street animal I had become. It doesn’t mean being a pansy; it means not always thinking people are trying to screw you and to alter the tone of communications. It’s not that easy.

The risk of a start-up is worlds apart from Wall Street. Salaries are sharply lower. Bonuses by Wall Street standards don’t exist. Upside is in the form of highly illiquid, massively volatile call options. It is a completely different payoff profile. This is hard to swallow for someone who has been on the gravy train for a long time. And even if that gravy train no longer exists, it doesn’t mean the adjustment isn’t very challenging. It takes time to adopt the start-up mind-set, and it isn’t easy for people who come from such a radically different world.

Without a doubt, there will be some Wall Streeters who migrate towards the “value expanders” bucket and do great things. But the challenges of making the switch should not be underestimated. A lot of mentoring, a lot of patience and some hard-core retraining is necessary to help these talented professionals successfully make the transition into the start-up world. This is a place where some stimulus dollars would be well-spent. Let’s unleash the entrepreneurial spirit, but do so in a way that both expands the value pie and prepares these nascent entrepreneurs for success.

Roger is an active early-stage investor, having seeded or invested in over 20 companies in asset management, financial technology and digital media since 2004. Prior to his venture days Roger spent 18 years on Wall Street in M&A, Derivatives and proprietary trading.

Throughout his career he has held numerous executive positions, including:

President and CEO of DB Advisors LLC, a wholly-owned subsidiary of Deutsche Bank AG. His 130-person team managed over $6 billion in capital through a twenty-strategy hedge fund platform with offices in New York, London and Hong Kong.

Managing Director and Co-head of Deutsche Bank’s Global Strategic Equity Transactions Group. In 2000, his team won Institutional Investor magazine’s “Derivatives Deal of the Year” award.

As an Investment Banker and Managing Director at Citibank, he held a variety of roles and responsibilities in the Global Derivatives, Capital Markets, Mergers & Acquisitions and Capital Structuring groups.